Pension Scheme Being Wound-up -options

Rebelrebel

Registered User
Messages
31
Hi All,

I have been informed that an Occupational Pension scheme that I had with a previous employee is being wound up. Value about 200k.
The letter i got have given me some options.
1. Transfer to my current employers pension scheme (I would rather not do this just to have some flexibility.)
2. Default option is a Personal Retirement Bond with Aviva (they say they have negotiated very competitive terms). I can choose a PRB with an insurer of my choice if I didn't go with the Aviva default.
3. A personal retirement Savings Account. (PRSA).

My thinking here is to just go with the default. Any reason that is not a good idea or that a PRSA would be a better idea?

Thanks,
RR.
 

GSheehy

Frequent Poster
Messages
357
The chances are that the Annual Management Charge on the PRB will be lower than the 1% available on the PRSA option. Especially as they've flagged the PRB as having 'very competitive terms'.

I would guess that the PRB will have early exit charges in the first few years of the contract though: the PRSA wouldn't. If fund choice is a consideration then the PRB will have more on offer.

It's a sizeable sum so do a bit of shopping around on the pricing/charges/providers.


Gerard

www.prsa.ie
 

Rebelrebel

Registered User
Messages
31
Thank you. I'll investigate the charges. Highly unlikely that I will need to exit in the next few years. Fund choice will be a consideration also so likely that the PRB option makes most sense especially if fees are below 1%. Appreciate the reply.
 

Dave K

New Member
Messages
4
Hi,
I would agree with GSheehy in respect of the above.

Also with your own remark about putting it into a new occupational scheme. you could limit yourself by doing this.

Putting it in to the PRB option for example there is the option to draw it down from the age of 50 on-wards in some cases where as in the occupational scheme you could be looking at 65.

I think for yourself the option of the PRB seems correct but the main thing you should concentrate on will be the charges.

For info purposes:
Take your time choosing a financial advisor to action this. The industry standard and norm is for advisors to charge commission but you can find financial advisors who charge a fee which can be more transparent.
In this case, been charged commission for a PRB Bond they could look at taking anything from 0 - 5% commission and depending on which would affect your allocation. Anything from 0-3% you still get 100% of your transfer value but anything between 3% and 5% that added % comes off your transfer value.
in this case of 200,000 to a PRB and Even taking the 3% commission where you get 100% of your fund the broker will walk away with €6,000 for just getting you to sign a couple of forms and possibly never giving you any more advice. I dont know about you but I find that slightly excessive. They could then take a recurring percent in charges each year (known as the trail)
Some advisors will actually agree a fee with you and so you may benefit having the extra in your PRB from the start.

Regards

David K
 

GSheehy

Frequent Poster
Messages
357
@Dave K

Would you have an idea of what level of fee the OP would have to pay if he/she set out their stall in the same way as in post #1 ?
 

Dave K

New Member
Messages
4
@Dave K

Would you have an idea of what level of fee the OP would have to pay if he/she set out their stall in the same way as in post #1 ?
Im not sure if this is what you mean, but in regard to the fee (AMC - Annual management charge) for managing an Occupational Schemes all I know is that they are considerably less than say having your own private pension or PRB.
I am pretty sure also that what ever is put into a OP is allocated to the fund less the AMC each year.
Exact rates I am not sure of and that would depend on agreement with the company themselves. But for an example the OP could have a AMC of say 0.5% (or possibly even less) while a PRB could be between 0.75 and 1.5% and that would be depending on what the Financial Advisor is also taking each year from it.
 

Smoneen

Frequent Poster
Messages
57
I think what G Sheehy was asking was how much an advisor fee would be for this scenario where the advisor adopts the fee model vs commission from the life office. I think you can only give balance to the OP if a guideline as to what that fee would be is given. You mention commission of €6k, vs a fee of ?

Im not sure if this is what you mean, but in regard to the fee (AMC - Annual management charge) for managing an Occupational Schemes all I know is that they are considerably less than say having your own private pension or PRB.
This gets thrown randomly into conversations on whether its best to leaving money in a scheme versus a PRB. Given that the majoroty of OPS’ in this country are one man schemes i.e. products set up through Brokers / Advisors the amc on these are generally no where near 0.5% base amc. Certainly for very large schemes (500+ staff) they are most likely going to have a lower amc than someone who sets up a one man EPP arrangement. But putting out the statement that an OPS has a lower amc than a PRB is just misleading in my opinion.

All providers on the market offer PRBs ranging in amc from 0.4% to 1%. Within those options you will have various allocation rates & penalties with age & premium size determining access to the individual products. What you are offered is up for negotiation between client & advisor. Some advisors simply won’t be interested in the low amc/ low commission space, others will happily provide these terms.

Far too often people focus on differences in amc of 10, 20, 30 bps and invest in a fund which underperforms relative to its peers. For me this is where a quality advisor really adds value.

To the OP, the default might have a competitive amc but what constitutes competitve? Look at your investment options, are you getting a lower amc for a fund with a poor track record against its peers. Of course, past performance cannot be relied upon but it does give you a benchmark to work from. By choosing the default who will help you & offer advice in the future?
 

Dave Vanian

Frequent Poster
Messages
625
Far too often people focus on differences in amc of 10, 20, 30 bps and invest in a fund which underperforms relative to its peers. For me this is where a quality advisor really adds value.
Are you saying that a quality advisor can pick a fund that will outperform others with lower charges by at least 10, 20 or 30 bps per year and thus justify the higher charges?
 

GSheehy

Frequent Poster
Messages
357
I think what G Sheehy was asking was how much an advisor fee would be for this scenario where the advisor adopts the fee model vs commission from the life office. I think you can only give balance to the OP if a guideline as to what that fee would be is given. You mention commission of €6k, vs a fee of ?
Yes.

Sorry @Dave K - I meant OP in the context of Original Poster.
 

Dave Vanian

Frequent Poster
Messages
625
A pity that you couldn't explain yourself.

"Far too often people focus on differences in amc of 10, 20, 30 bps and invest in a fund which underperforms relative to its peers. For me this is where a quality advisor really adds value."
 

Smoneen

Frequent Poster
Messages
57
@Dave Vanian I thought it was very obvious from reading my post in it’s entirety and in the context of the thread. But I apologise if it wasn’t for you. I’ll try to expand for you rather than focusing on a few words in isolation.

There are many many threads on this forum referencing best amcs on financial products. Scheme winds ups where employers and/or scheme trustees source the most “competitive charges” for their members typically ignore the investment options available on the market. This is an area best left to advisors rather than to scheme trustees. An advisor can work with you to provide you with something more wholistic, which suits your goals rather than just a product that has a low amc. Now as part of that plan the right / chosen product might just have a low amc. That will come down to how your advisor will be remunerated for their advice.

An example might be useful. Last Friday I sat with a family member for 2.5 hours looking a a scenario very similar to that of the OP. A scheme transfer to a PRB. The option was a PRB of 0.37% with 4 investment choices available. These were 4 passive funds 3 of which had over 50% concentration in eurozone (both equities & bonds). Having started with what he wanted to achieve we worked back through all the usual stuff - target benefits in retirement, how benefits might be taken, risk, tax, what return would be needed to achieve, options at various time frames etc. The last part of this plan then was to look at potential investment funds and the product that can give us the best possibility of reaching the desired outcome. This requires a wide range of knowledge of both the products and funds available on the market.

When we looked at long term performance across a wide range of suitable funds there were several that stood out over the one fund that he would likely have chosen from the default option. Of course these is no magic wand that you can shake to guarantee the same future outperformance, however drilling down through asset mix, long term volatility, sharp ratios, TERs etc we came up with a short list. He has now selected a product with a 0.6% amc (so .23% higher than the default), and a fund, similar in it’s objective to the one viable option from the default list, which in the past outperformed annually by 2.5% over a 15 year term. Working through projections we just need 1.2% outperformance (Over the projection provided by the default) to achieve his aims. Usual caveats re projections noted, now we just need to monitor the progress over the next number of years & make adjustments if there are any changes to any element of the plan.

So in summary what I am saying is while an advisor can’t guarantee you that you will achieve the best outcome, they should be able to help you make an informed decision. A cheap amc is just one part of the picture, on which far too much emphasis is placed, in my opinion.
 

Sadim

Frequent Poster
Messages
77
Hi,
I would agree with GSheehy in respect of the above.

Also with your own remark about putting it into a new occupational scheme. you could limit yourself by doing this.

Putting it in to the PRB option for example there is the option to draw it down from the age of 50 on-wards in some cases where as in the occupational scheme you could be looking at 65.

I think for yourself the option of the PRB seems correct but the main thing you should concentrate on will be the charges.

For info purposes:
Take your time choosing a financial advisor to action this. The industry standard and norm is for advisors to charge commission but you can find financial advisors who charge a fee which can be more transparent.
In this case, been charged commission for a PRB Bond they could look at taking anything from 0 - 5% commission and depending on which would affect your allocation. Anything from 0-3% you still get 100% of your transfer value but anything between 3% and 5% that added % comes off your transfer value.
in this case of 200,000 to a PRB and Even taking the 3% commission where you get 100% of your fund the broker will walk away with €6,000 for just getting you to sign a couple of forms and possibly never giving you any more advice. I dont know about you but I find that slightly excessive. They could then take a recurring percent in charges each year (known as the trail)
Some advisors will actually agree a fee with you and so you may benefit having the extra in your PRB from the start.

Regards

David K
Expanding that a bit David, I left a tiny occupational pension in Scotland back 25 years ago when I came back to Ireland. The scheme was wound up in 2005 or 2006 and I never replied to the options letters that I got (worse luck). I am now mid-50s so, I started chasing this down 2 - 3 years ago. Turns out my fund (c.£20k) defaulted into a Personal Retirement Bond and I have had some comms with Aviva in the UK, they tell me I have no early encashment options and have to wait until 65 to get an annuity of c.£700pa. Does that sound right?
 

Dave Vanian

Frequent Poster
Messages
625
@Dave Vanian I thought it was very obvious from reading my post in it’s entirety and in the context of the thread. But I apologise if it wasn’t for you. I’ll try to expand for you rather than focusing on a few words in isolation.

There are many many threads on this forum referencing best amcs on financial products. Scheme winds ups where employers and/or scheme trustees source the most “competitive charges” for their members typically ignore the investment options available on the market. This is an area best left to advisors rather than to scheme trustees. An advisor can work with you to provide you with something more wholistic, which suits your goals rather than just a product that has a low amc. Now as part of that plan the right / chosen product might just have a low amc. That will come down to how your advisor will be remunerated for their advice.

An example might be useful. Last Friday I sat with a family member for 2.5 hours looking a a scenario very similar to that of the OP. A scheme transfer to a PRB. The option was a PRB of 0.37% with 4 investment choices available. These were 4 passive funds 3 of which had over 50% concentration in eurozone (both equities & bonds). Having started with what he wanted to achieve we worked back through all the usual stuff - target benefits in retirement, how benefits might be taken, risk, tax, what return would be needed to achieve, options at various time frames etc. The last part of this plan then was to look at potential investment funds and the product that can give us the best possibility of reaching the desired outcome. This requires a wide range of knowledge of both the products and funds available on the market.

When we looked at long term performance across a wide range of suitable funds there were several that stood out over the one fund that he would likely have chosen from the default option. Of course these is no magic wand that you can shake to guarantee the same future outperformance, however drilling down through asset mix, long term volatility, sharp ratios, TERs etc we came up with a short list. He has now selected a product with a 0.6% amc (so .23% higher than the default), and a fund, similar in it’s objective to the one viable option from the default list, which in the past outperformed annually by 2.5% over a 15 year term. Working through projections we just need 1.2% outperformance (Over the projection provided by the default) to achieve his aims. Usual caveats re projections noted, now we just need to monitor the progress over the next number of years & make adjustments if there are any changes to any element of the plan.

So in summary what I am saying is while an advisor can’t guarantee you that you will achieve the best outcome, they should be able to help you make an informed decision. A cheap amc is just one part of the picture, on which far too much emphasis is placed, in my opinion.
Thank you. That's a much better reply than your previous one.
 
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